Liability a Big Issue for Many Business Card Users
Credit unions seeking to attract more entrepreneurs might consider stating clearly that they will not consider debt incurred on business cards to be the personal debt of the cardholder.
“Most people think of business and personal as being inherently different, but that’s certainly not the approach taken by the 10 biggest credit card issuers,” explained CardHub CEO Odysseas Papadimitriou.
“If you default on a business credit card, they will come after both your business and personal finances to recoup amounts owed,” Papadimitriou said.
“This is important not only because it will be a wake-up call for small business owners who think they are personally insulated from liability,” he said. “but also because it means that using a consumer credit card to fund a small business will not increase the owner’s personal liability.”
The study also found that most major card issuers report business card data on personal credit reports, a fact which can have a significant impact on personal credit standing should the business fail.
“The odds are that if you have a business credit card, it impacts your personal credit standing,” Papadimitriou added. “And given that your credit standing dictates loan and credit card eligibility, interest rates, insurance premiums, job prospects, and much more, being unaware of that fact is not good.
“Three out of 10 small businesses fail within two years, according to the US Small Business Administration, and nearly 50% fold within five. You don’t want to be blindsided by damaged personal credit if your company meets that unfortunate fate.”